A call for 'responsible' entrepreneurs

Kim Hairston / Baltimore Sun

Julie Lenzer Kirk, executive director of the Maryland Center for Entrepreneurship, in part of the space that will become Howard County's new Conscious Venture Lab, a business accelerator for entrepreneurs wanting to focus on doing good for employees, the community and the environment as well as the bottom line. The space will be expanded and several businesses will operate in approximately 2000 square feet in an area that will become Excelerator Alley.

Julie Lenzer Kirk, executive director of the Maryland Center for Entrepreneurship, in part of the space that will become Howard County's new Conscious Venture Lab, a business accelerator for entrepreneurs wanting to focus on doing good for employees, the community and the environment as well as the bottom line. The space will be expanded and several businesses will operate in approximately 2000 square feet in an area that will become Excelerator Alley. (Kim Hairston / Baltimore Sun)

Few companies watch their bottom line with more anxiety than startup firms, but the ones who want to move into a new business accelerator in Columbia will need to think beyond revenue and expenses.

Howard County's Conscious Venture Lab is on the hunt for fledgling companies practicing a form of what's often called responsible or sustainable capitalism — businesses with aims that include but aren't limited to profits. The accelerator's organizers want firms that consider not just shareholders in their decisions but also a broad range of other "stakeholders" such as employees, suppliers and the environment.

"It's not about socialism," said Jeff Cherry, executive director of the accelerator and CEO of a financial consulting firm. "It's about a better form of capitalism."

The accelerator — funded by the county for two years with $750,000 — is one of a relative few in the business incubation world specifically focused on such companies. But it joins a long line of efforts to aid and prod corporations to do good while doing well, a movement that has gained momentum and high-profile advocates.

Unilever CEO Paul Polman, whose consumer-products firm is often named as a top "sustainable" company among the multinationals, said in a National Public Radio interview in June that one result of gridlocked governments is that "the need for change increasingly has to come from responsible business."

That sums up the responsible-capitalism pitch: Stop focusing on short-term profits to the exclusion of all else, and you'll actually make more money.

Studies testing that theory have come to contradictory conclusions.

The research on "responsible investment" — funds that buy into companies they judge to be good in more ways than their growth potential — suggests the method delivers results "on par with conventional techniques," according to a 2011 paper by GMI Ratings, which researches environmental, social, governance and accounting risks faced by public companies.

Long-term benefit

But a more recent study by business professors from Harvard University and the London Business School, released in July,concluded that what they dubbed "high sustainability" companies "significantly outperform their counterparts over the long-term."

The authors said their study was unusual because it tracked performance over many years. They looked at firms that got serious about social and environmental issues no later than two decades ago, comparing them to firms that made few efforts along those lines but were otherwise similar.

"A more engaged workforce, a more secure license to operate, a more loyal and satisfied customer base, better relationships with stakeholders, greater transparency, a more collaborative community, and a better ability to innovate may all be contributing factors to this potentially persistent superior performance," the authors wrote.

Efforts to encourage such behavior include third-party certifications such as "fair trade" and "fair labor."

"People are expecting companies to be doing these things, and they look for certification as an indication that they are doing these things," said Dave Knight, sustainability services director at Two Tomorrows, based in the United Kingdom.

Many states now give businesses an option to structure themselves differently, too.

Maryland leads

In 2010, Maryland became the first state in the country to allow companies to form as "benefit corporations." Such firms are protected from lawsuits over decisions that put workers, customers or similar interests before profits. Much of the country has followed Maryland's suit, either passing or considering such legislation.

Some of the 60 companies that had organized as Maryland benefit corporations or LLCs as of May don't seem to be anything more than a name, but others have offices, employees and sales. For Clean Currents, a renewable-energy provider in Silver Spring, it seemed like a good business move to get that legal designation plus a separate certification that it meets certain social, environmental and accountability standards.

"Anybody can sell a green product," said Clean Currents co-founder Gary Skulnik, but the question for customers is whether "the company behind it is green as well."

Then there are the responsible-investment funds, which typically seek out companies deemed sustainable but also cajole firms that aren't.

Some of the funds offered by Bethesda-based Calvert Investments, which focuses on "long-term value and responsible corporate practices," are filled with the stocks of companies that have potential but aren't there yet. Calvert submits shareholder resolutions, talks frequently with corporate executives and works to influence policy worldwide on issues ranging from climate change to human rights, said Bennett Freeman, Calvert's senior vice president for sustainability research and policy.

"You can say the glass is half-full or the glass is half-empty when it comes to corporate commitment and performance around sustainability," he said. "At Calvert, we believe the glass is half-full and rising."

Growing trend

In fact, it's getting hard to find a company that doesn't at least claim to embrace sustainability. Diederik Vismans, a principal in the Boston Consulting Group's sustainability practice, said that "in general, everybody is doing something on this issue."

But there's a split between companies that treat it as a side issue, perhaps a philanthropic one, and firms that approach it as a core strategy. He's seeing more interest from companies who want to be in the second group.

"The ones who figure out how to make it a core, strategic issue, they're the ones who profit from it," Vismans said.

Some firms, particularly consumer brands, see such work as critical for their reputation.

More than 80 percent of global consumers polled for a Cone Communications study this year said companies' social and environmental commitments were somewhat or very important in their own decisions about what to buy, where to work and what products to recommend to others.

And news travels fast these days when not-so-great decisions involving companies — or their suppliers — go sour.

It's for that reason that Olivia Khalili, a social business consultant who runs San Francisco-based Cause Capitalism, thinks the business world is shifting back toward the preindustrial model of businesses that had "relationships with their community."

"We are so globally connected," she said. "There's a greater awareness of who your consumers and suppliers are in ways that you can't quite escape."

The Conscious Venture Lab in Columbia, launched in October, expects its first businesses to move in this February. In the seven weeks since it began taking applications, it has received about 40 — for five slots. Inquiries have come from as far afield as California's Silicon Valley, Texas' innovative Austin corridor and even South Africa, the organizers are pleased to note.

"I'm really encouraged by the level of entrepreneurship," said Cherry, the accelerator's director.

Cherry used to run a hedge fund that invested in companies working to build strong relationships with employees, suppliers and communities rather than focusing "myopically on shareholder value." Now he's CEO of the Porter Group, a New York financial consulting firm, and he said he wanted to get directly involved in cultivating more of these businesses.

He said he called Julie Lenzer Kirk, executive director of the Maryland Center for Entrepreneurship in Columbia, in the hope of poaching her for his effort. Instead, she recruited him.

Now the Porter Group is raising money from institutional funds, foundations and others to invest $25,000 to $50,000 in each accelerator business. The cost of staffing and space is covered by the county.

The accelerator's website describes its mission with a question: "What would happen if businesses around the world started caring as much about people as they do about profit?"

"This is an area that can be a real strength for Maryland," said Howard County Executive Ken Ulman, Lt. Gov. Anthony Brown's running mate in the 2014 gubernatorial election. "I run into folks all the time that have a new idea that also improves our community in some way."

The accelerator will operate in the county-run entrepreneurship center. It's an empty space right now. To raise money for outfitting it — and to drum up attention — organizers are asking for $50,000 on crowdfunding site Indiegogo. They've pulled in about $10,000 for the work so far.

Kirk said the accelerator will coach companies on business fundamentals like customer acquisition but also "how do you build that culture that makes decisions differently." She and her colleagues see it as every bit the economic development effort that landing a relocating employer would be.

"It's a different type of business attraction model," said Lawrence Twele, the county's head of economic development. "We are helping to create companies, but it also creates an environment where forward-thinking companies want to be."